Saturday, October 25, 2008

The Animation Man: DQ Entertainment.

Tapaas Chakravarti loved comics enough to mop up an impressive collection, but for a long time, thought little of making a career out of it. A sales and marketing professional, he had modest ambitions and a low-risk job profile until eight years ago. Then, overtaken by a passion for animation and entertainment, he chucked his job and started DQ Entertainment that has grown into one of India’s largest production houses for animation and visual effects now.

Sitting pretty at his vaastu-designed office in a winding lane off Hyderabad’s posh Banjara Hills area, Chakravarti talks of taking DQE, which started as an animation outsourcing firm, to the next level of creating own animation titles and diversifying into games. Set up in 1999 with an initial investment of Rs 5 crore, DQ Group has today become a Rs 250-crore entity with 3,200 employees. It has expanded its production facilities to China and Philippines and has lined up a number of projects involving the creation of intellectual property.

But the dream of entrepreneurship was not easy to realise for Chakravarti. When he started, there was no funding available for animation ventures. So, he dipped into his savings from his stints at Sandoz India (now Novartis), Coats of India and Shriram group and started the firm. But within a year, early track record helped DQE get its first equity investor. Four others came on board in 2002. Now, the promoter holding is only 25% with investors including International Finance Corporation, TDA Capital Group, India Value Fund, and IL&FS Investment Managers holding the balance.

“We focused on outsourced animation work to begin with. But, for the last three years, the thrust is on IP generation. Only 25% of our revenue come from outsourcing now and the rest comes from outsourced work and co-production,” Mr Chakravarti says.

The National Association of Software and Service Companies (Nasscom) estimates that global animation market will grow from $59 billion in 2006 to $80 billion by 2010. The market for animated content and related services is estimated at $25-26 billion and forecast to cross $34 billion by 2010. Gaming market worldwide is expected to grow from $21 billion to $42 billion, while the gaming content market is estimated at about $7 billion in 2006 and is expected to cross $13 billion by 2010.

“What makes us different from our competitors is that, we moved from being an outsourcing partner to an IP generator. We also have strong tie-ups in place, which helps us produce quality content,” he says. DQE has partnerships with leading production houses such as Universal, Nickelodeon, Cartoon Network, France-based TFI, M6, BBC and Italy-based RAI Group.

The company has also formed joint ventures with two French production houses: Method Films and Onyx Films. “We have picked up 30% stake in Method and 5% in Onyx. Under Methods Films JV, we are looking at producing feature films. And, with Onyx, we have started working on two feature films. Skyland will be ready for release in 2008 while Night of the Child King will be released in 2009,” he says.

DQ Entertainment is now ready to diversify into the gaming segment, covering the gamut of 3-dimension console games, mobile games and online web-based games.

In the pipeline is a console game based on Harry Potter. “We already have the content in place as we own IPs. The challenges lies in transforming the art into technology,” he says.

It is also setting up pre-production and post-production studios in Paris and Los Angeles at an investment of $10 million. While the Paris studio will be a joint venture with France-based Onyx Films, the US facility will be set up by DQE itself.

The company has also lined up strategies to address the talent crunch, which is a major challenge for companies in this segment. DQ is working with state governments and setting up its own training academies to ready supply of trained manpower. “We are working with Andhra Pradesh, West Bengal, Rajasthan and Madhya Pradesh for setting up animation academies. We are planning to set up 10 academies of our own,” he said. The company has added over 4,000 animation and gaming personnel to the talent pool and it is aiming to train over 3,000 more in next two years. DQE will also invest Rs 19 crore on a new campus in Hyderabad.

Interview with DQE CEO Tapaas Chakravarti.

What's the latest news with DQ Entertainment Ltd?

A major long-term contract for 4 - 26x26 3D TV Series and 2 feature films in 3D have been finalized on 17th of January with a major French producer to be co-produced with Broadcasters from Europe and USA. This production will be completed between 2006 - 2009. The deal is over Rs 180 crores - a major break through for DQ Entertainment! On 2nd of Jan, DQE also went ahead and signed a contract for two 2D TV Series with a European major with a deal over 50 crores to be completed in the next 18 months.

We are working on a 3D console game based on the animated TV series Skyland, which is our co production with a French studio and has sold in 77 countries. This 3D console game production has already started in France and in India with confirmation from a major US publisher for sales and marketing by middle of 2007. We are very happy that the second season of Skyland - 26x26 co-production is also confirmed to start by 3rd quarter of 2006.

Last year we worked on 26 projects some of which are continuing into 2006. 20 of these are TV series and 6 are Direct to Home Videos.

We are the largest outsourcing and co-production studio in the world with a total of close to 2700 artists. Amongst these 1900 artists are working at DQ's 2D & Flash animation units in India, South East Asia and Far-East, while over 850 artists are engaged in the 3D division in India. We are looking to grow to 4000 in the next 18 months, which will include maximum growth in 3D Mobile and Online games.

The gaming division already has over 192 people under training with ambitious plans for rapid growth.

When and how was DQE formed?

Originally in the early nineties we were a software and multimedia company, but I always had a passion for art and cartoons. I had a personal collection of more than 4,000 comics, which I have now donated to a library.

In the Mid 90's due to my international exposure, I knew that something could be done in animation. We wanted to kick-start the studio but nobody was willing to fund it. All the investors then, thought that only Disney and Warner did animation. The Mid 90's witnessed the dot com boom and investors were of the opinion that we should start a dot com company.

With no funding available for an animation venture I invested my own earnings in 1999 and formed DQE. By the end of 2000, the company got its first equity investor and four more investors came in 2002 after they saw our immense performance and we have never looked back since then.

Managing a vast multitude of creative people must be tough. Please throw some light on your management practices?

We call it superior management skills where artists are empowered with freedom for being creative under the company guidelines. Every employee of the company has a feeling of ownership for the work that they do and also for the company.

The key factor is believing in ourselves and the creation of a core management team that has the same conviction. Equally important is simplicity of operations, corporate governance, where each and every person's role is well defined. Enough freedom is given to an artist to use his/her creativity for quality and we have very effective management for production.

Every project has to be of the best quality and on time. Non-stop training and development for creative people with very well defined HR, Technical and creative programs. We set up the DQ center for learning around six years ago and In house training has been one of our major investments in the last six years.

We have developed (and patented) a proprietary ERP system, which is the first in the world for production management, people management, and company management.

What is the most important issue facing the Indian animation industry?

Training.

Gear up for training fresh people, If the government comes forward and takes animation training on their agenda then many studios will be saved from bankruptcy.

This Industry is growing rapidly; entrepreneurs and big companies are also in the fray. In a long-term perspective this augurs well, it is a good sign and the Indian industry will have more recognition worldwide. But short term such a scenario will mean a severe war to retain talent and human resource.

Today the attrition rate at DQ is just 2 to 3%, however we are gearing ourselves for a higher percentage.

My message is you should invest in training. You must train and invest in training and development. It is a must investment.

Do not crib, cry and fight with competition, we are a democratic country. People can move after their contracts have expired. All good companies must invest in training and manpower. Not depend on hiring people from other studios. All big companies in IT sector have robust training programs and sizeable investments in training, in spite of that there is a 20% attrition rate there, the BPO industry boasts of an even higher rate close to 30%.

The people here don't want to move because they believe that DQ is for them, they are looked after well, still there is some attrition due to the hometown factor. I consider churn as a cross-fertilization of knowledge, this will grow the industry and people do come back, it's a circle.

30% of investment in our company has been into training. It is a humungous task and only this way one can create a lasting workforce and a company that generates value and world class award winning content.

We believe that the Central as well as State Governments have to take progressive and quick initiatives to promote creation of local content for TV and theatrical markets to further enhance the potential of this industry.

Could you elaborate on the Awards bit?

We have won quite a few International Awards. Toddworld - 56x 11 mins, , a co-production with Mike Young Productions for Discovery Kids was nominated for Emmy. Delta State (Flash animation cum live action) won awards at BAAF, Mumbai and then at Annecy, France. Two of our other TV series will be competing at the 05-06 Emmy Awards. Our company was selected as the top 100 Asian Companies for the year 2005 by Red Herring, California.

Future Plans?

We are already in the process of creating TV and Theatrical content for India and global markets, produced exclusively by us and assisted by US and French based companies.

Skyland was co produced for four Broadcasters and sold in 77 countries including Nickelodeon U.S., that is the kind of business model we are pursuing. We have to create a series that sells in 77 countries!!

Major thrust area for us in the next 3 years will be 3D Online and Mobile Games development on a large scale and enhancing capacities for 2D, Flash and 3D Animation production for Asian and Indian Markets. There will also be a major foray into distribution Merchandising and Publishing.

Most of the co productions out of India are nothing but dignified reduction of price to get orders, It was true for us also initially but now in the last one year we have a sizeable share in the backend of most of the projects we do. We will move towards real co productions with hard currency investments where we will be involved in the pre production, original property ideas, distribution and merchandising with partners.

We are also rapidly expanding into high end games development, animated feature film production for worldwide distribution and other children's entertainment related businesses. Many big things will happen in 2006 and onwards.

No plans for opening other studios in Indian cities in the near future, long term we may expand to Mumbai, Bangalore or Kolkatta.

A large fund raising is bound to happen sooner or later, with objective of global growth plans. Vision 2010 for DQ is to be a globally recognized children's entertainment company.

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